LANSING, Mich. (MIRS News) – Starting in 2026, a publicly held domestic or foreign corporation with Michigan-based principal executive offices must have at least three female directors on a board under legislation proposed by Sen. Sylvia Santana (D-Detroit).

“There’s been research (from) time immemorial that shows that companies that have a diverse corporation board are 30% more profitable, or even more profitable than that,” said Santana to MIRS News on her SB 242. “When we’re a first-world country, we need to make sure that we are looking at how we can best service our population…but more importantly, make sure that we put women in key roles.”

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According to a 2022 report titled “Women’s Leadership In Michigan Public Companies,” the share of women directors serving on a public company’s corporate board in the state grew from 10% in 2015 to 24% in 2021. When it came to the presence of women positioned as one of a company’s top five compensated officers, the number doubled from 7.1% in 2003 to 14% in 2021.

Within a sample of some of Michigan’s largest public companies – including General Motors Co., Kellogg Co., DTE Energy Co., Ford Motor Co. and BorgWarner Inc. – the combined share of women directors expanded from 16% in 2007 to 32% in 2021.

However, also in 2021, nine Michigan companies did not have any women directors, and women made up 14% of the executive officers named that year. Out of the aforementioned group of Named Executive Officers (NEOs), 2.2% of them were women of color.

Santana’s SB 242 could face criticism due to it being based on a California state law requiring that by the end of 2021, each publicly traded corporation with principal executive offices in the state must have at least one female director for boards with four or fewer directors. Those with boards with six or more directors would need to have at least three female directors.

However, in May 2022, a Superior Court judge in Los Angeles ruled that the law violated the right to equal treatment under the state’s constitution.

However, before the ruling, the law was accredited by multiple supporters for helping to increase the presence of women on company board seats from 17% in 2019 (when it took effect) to 30% in September 2021, based on the Russell 3000 Index of the country’s largest companies, and relayed by PBS.

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Various states have enacted different kinds of diversity-related measures that share the California law’s ambitions. For example, in October 2019, Maryland enacted a law requiring foreign and domestic, as well as for-profit and nonprofit, business entities to have the number of overall directors and female directors disclosed in their annual reports. As of 2020, the Maryland law was exclusive to entities with revenues of more than $5 million.

In August 2019, Illinois enacted a board diversity disclosure law mandating publicly held corporations with principal executive offices in the state to report a description of how diversity, equity and inclusion among its board of directors and executive officers was being encouraged. They were additionally instructed to publish the self-identified gender of each of its directors in a yearly report filed with the Illinois Secretary of State.

“Obviously, there are companies who are currently doing this regardless of legislation, but definitely it is something we want to see more of,” Santana said in relation to businesses aiming to have more female representation in leadership. “Even since this legislation was introduced in California, several states have passed their own iterations of the legislation…Massachusetts, Pennsylvania and New York being some of those states.”

Under SB 242 specifically, a publicly held domestic or foreign corporation without at least three female directors on its six-or-more-director board starting in 2026 would receive a first violation fine of $100,000. A five-director board would need to have at least two female directors, and a board with four or fewer directors would need to have at least one female director.

Subsequent violations would obtain a $300,000 fine. There would also be a public reporting requirement kicking off sooner if the legislation was signed into law.

Moreover, the bill at-hand could be particularly relevant in Michigan as the state’s economic development corporation and the Strategic Outreach and Attraction Reserve (SOAR) Fund aim to attract corporations to Michigan with taxpayer-funded incentives.

For example, Michigan Strategic Fund (MSF) President Quentin Messer Jr. told the Senate Appropriations Committee last month there were more than 225 projects in the pipeline that the state could compete against other states in attracting.

“When I first came to the Legislature, I knew that we have had women-owned, Black-owned women companies who have come to Michigan looking for support from the (Michigan Economic Development Corporation) or requests for proposals…and came with great business concepts and would help to flourish in our state, but yet those projects were not awarded nor were they prioritized,” Santana said. “I think that conversation has to extend beyond just the projects that we currently have…”

SB 242 was referred to the Senate Economic and Community Development Committee.